We recently compiled a list of the 10 Most Promising Future Stocks According to Analysts. In this article, we are going to take a look at where Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) stands against the other Most Promising Future Stocks According to Analysts.
Rising Market Volatility
Volatility in the equity markets is poised to hit levels not seen for the better part of the year as investors battle a string of developments. The uncertainty around the upcoming US elections and the soaring geopolitical tensions in the Middle East are the latest headwinds sending shockwaves in the market.
A report by MarketWatch indicates that October could turn out to be a spooky month for equities as valuations appear overstretched, with major indices at all-time highs. Analysts are no longer ruling out the prospects of a market crash given that recession fears are rising even though inflation levels have dropped significantly, prompting the Federal Reserve to cut interest rates.
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While expectation is high that the US economy will achieve a soft landing on higher interest rates, leading to lower inflation without causing a major hit to the economy, Michael Darda, chief economist and macro strategist at Roth Capital Partners, is sounding warning bells.
The economist maintains we are marching on ice that’s a bit thinner, depicted by rising unemployment and elevated earnings expectations that triggered market routes in August and September.
“It’s not unprecedented to have a slowdown period that looks like a soft landing, and then a recession ends up taking shape,” he said. “That’s sort of unexpected now because many have been lulled into this idea that the soft landing is going to be a permanent state of affairs for the business cycle. Equity market valuations reflected that coming into the summer.”
“But there’s been some cracks in the business cycle,” he cautioned, noting expectations for the economy, corporates, and the stock market have remained at “super high” levels.
A slowdown in the US economy amid the high interest rate environment comes amid a highly charged election that threatens to rattle the stock market. While indices are at all-time highs at the back of one of the longest bull runs, the prospects of a deep pullback are growing as investors become more cautious ahead of the election.
While the US stocks have often rallied following a major US election, Former Goldman Sachs partner Abby Joseph Cohen believes things could turn around this time around.
“Historically when you go back many cycles you see that the US stock market does pretty well after a major election. There is a sigh of relief and also most people feel that their candidate has won. This year aim not convinced it is going to be a sigh of relief rally. In fact if anything I am quite concerned about what happens if there is agitation of any sort following the election because of uncertainty about results,” Cohen said.
Although there is a good chance that the US stock market will crash this time, many analysts are also saying that things might improve following a very bad September that also saw premium stocks like the S&P 500 plummet and hit all-time lows.
AI-related firms continue to drive market gains, with the S&P 500 up 21% year-to-date. Howard Chan, CEO of Kurv Investment Management, highlighted the importance of monetizing AI initiatives, noting Meta’s share price surge due to strong sales growth.
Analysts are increasingly focusing on promising future stocks, particularly those in advanced technologies, which are expected to withstand short-term pressures and deliver long-term value. Investing in industry leaders with a competitive edge and a strong track record of revenue and earnings growth, combined with low interest rates, is seen as a strategy likely to yield significant returns. Despite market volatility, certain stocks continue to offer substantial opportunities and the potential to generate significant long term value.
Photo by Yogesh Phuyal on Unsplash
Our Methodology
To make our list of the most promising future stocks to buy according to analysts, we made a list of 40 stocks with market capitalization greater than $10 billion, significant average analyst share price percentage upside, and an average rating of Buy or better. They were then ranked in ascending order based on analyst’s upside potential, and the most promising future stocks are as follows.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Number of Hedge Fund Holders: 156
Analyst Upside as of October 10, 2024: 11.29%
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is a contract chipmaker that boasts of some of the most advanced manufacturing capabilities that remain in high demand amid the artificial intelligence race. The company has been ramping up its 2nm technology development.
As the world’s biggest maker of semiconductor contracts, TSM has greatly benefited from expanding artificial intelligence (AI) infrastructure as its clients rush to develop more sophisticated AI chips to meet the growing demand.
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) seems to have a long runway of growth ahead of it as big tech companies continue to increase their capital expenditures (cape) related to AI. As AI models develop, they require more and more graphics processing units (GPUs) and other chips like CPUs (central processing units).
With the launch of a new AI-powered iPhone, Apple remains TSM’s biggest client. Revenue in its most recent quarter ended September, totaled $23.62 billion, up 36.5% year over year, affirming strong demand for its products.
Over the next five years, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)’s revenue growth is expected to be robust and consistent. Management anticipates that by 2028, AI-related chips will account for about the low teens of its total revenue, growing at a 50% compound annual growth rate (CAGR). That is a robust growth rate, and its 2 nanometer (nm) chip design will drive a large portion of future expansion.
Consequently, according to analysts, TSM remains one of the most promising future stocks, going by the average buy rating and a price target of $205.00, implying an 11.29% change from the last price of $184.20. Overall, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) was held by 156 hedge funds at the close of Q2 2024, with total stakes amounting to $21.28 billion. As of June 30, Fisher Asset Management was the largest shareholder, with a position worth $4.94 billion.
Diamond Hill Capital stated the following regarding Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its Q2 2024 investor letter:
“On an individual holdings’ basis, top contributors to return in Q2 included our long positions in Alphabet, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) and Microsoft. Semiconductor manufacturer Taiwan Semiconductor’s (TSMC) fundamentals remain solid as demand for its chips continues growing — particularly as the machine learning and cloud computing trends gain more traction.”
Overall TSM ranks 10th on our list of 10 Most Promising Future Stocks According to Analysts. While we acknowledge the potential of TSM as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than TSM, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.